Q4 2019 Earnings Call
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Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Ladies and gentlemen, thank you for standing by welcome to the Apache Corporation fourth quarter 2019 earnings announcement webcast. At this time all participants on in listen only mode. After the speakers presentation, there will be a question and answer session.
The question. During this session you would need to press Star then one on your telephone.
Please be advised for today's conference is being recorded.
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I'd now like I hand, the conference over to you speak of what today very clock Vice President Investor Relations you may begin.
Good morning, and thank you for joining us on Apache Corporation's fourth quarter financial and operational results conference call.
We will begin the call with an overview by CEO and President John Chrisman, Steve Riney, Executive Vice President and CFO, well, then summarize our fourth quarter and full year financial performance, Dave Purcell Executive Vice President of development planning reserves and fundamentals will also be available on the call to answer questions.
Our prepared remarks will be approximately 15 minutes and linked with the remainder of the hour allotted for Q and I.
In conjunction with yesterday's press release I Hope you have had the opportunity to review, our fourth quarter financial and operational supplement which can be found on our investor Relations website at Investor Dot Apache Corp Dot com.
Please note that we may discuss certain non-GAAP financial measures a reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website consistent with previous reporting practices adjusted production numbers side.
I didn't in today's call our adjusted to exclude non controlling interest in Egypt, and Egypt tax barrels.
Finally, I'd like to remind everyone that todays discussions will contain forward looking estimates and assumptions based on our current views and reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discussed today.
A full disclaimer is located with the supplemental information on our website.
And with that I will turn the call over to John.
Good morning, and thank you for joining us on todays call I will recap Apache's 2019 accomplishments discuss our fourth quarter performance and conclude with an overview of our strategic approach for the next few years.
Well patchy 2019 was a year of both progress and challenges.
Our most significant challenges were associated with alpine high which I will discuss in a few minutes.
Our progress however was on many fronts, we took steps to advance key environmental social and governance initiatives.
Met our corporate goals around capital spending reduction and cash returns.
Further streamlined and repositioned our portfolio and strengthened our balance sheet.
Specifically over the last year, we enhanced our global sustainability efforts by linking E.S.G. goals directly to short term incentive compensation initiated alignment of E.S.G. disclosures with SaaS be in Tcf the recommendations.
And began to either more capital specifically for E.S.G. projects.
We launched a comprehensive corporate redesign to further align our organization work processes and cost structure with lower long term planned activity levels, and we reduced upstream capital investment by 23% from 2018.
We also delivered cash return on invested capital consistent with our corporate incentive compensation target of 19% and continued to streamline our portfolio with the divestment of assets in Oklahoma and the Texas Panhandle.
Internationally, we generated a substantial inventory of new drill ready prospects in Egypt through our recent seismic and acreage evaluation initiatives.
We sustained production levels in the North sea with 100% drilling success rate and achieved first production from our store discovery, which was on time and on budget.
And at year end, we signed a joint venture agreement with total in block 58, Surinam, which brought in a world class offshore operator, and established a substantial capital access framework.
This enabled Apache to retain a 50% working interest in the block while significantly reducing our exposure to potential large scale appraisal and development spending.
Moving now to the fourth quarter.
Oil production in the Permian basin exceeded guidance and average the highest quarterly rate at Apache's history.
Since mid 2017, we have operated our unconventional oil focused program at a relatively steady and deliberate pace. This is generated highly competitive well results solid returns and an attractive oil production growth rate in the Permian.
This year, we plan to reduce our Permian operated rig count and deliver a low to mid single digit oil growth rate.
At Alpine high results were disappointing on a few fronts and our second quarter 2019 earnings release, we spoke about the impact of the natural gas and NGL price collapse on the economic competitiveness, a further investment and alpine high.
In the second half of 2019 extended flow data from key spacing and landing zone tests indicated disappointing performance of our multi well development pads.
While these tests are not fully conclusive for the entirety of alpine high given the prevailing price environment. Further testing is not warranted at this time.
As a result, we dropped the remainder of our drilling rigs in the fourth quarter and chose to defer some previously planned completions.
In Egypt gross production in the fourth quarter was relatively flat with the third quarter.
Adjusted production volumes in the quarter were adversely impacted by a one time cost recovery settlement agreed to by our partner in one of our non operated concessions. This should have no ongoing impact on future production volumes.
Strong drilling results in Egypt during the quarter position us well for 2020, and we look forward to testing some high impact oil prospects on both new and legacy acreage beginning around mid year.
Production in the North Sea increased significantly following seasonal platform maintenance turnarounds in the third quarter and first production from our store discovery in November.
Startup of the garden to well was delayed into the first quarter as previously disclosed.
This well is now online and will drive a further production increase in the first quarter of 2020.
Turning now to Suriname, we drilled our first well and block 58, the Maka central number one during the fourth quarter and subsequently announced a significant oil discovery in January we're now working with our partner hotel on an appraisal plan, which will be submitted to the state owned oil companies that solely in the coming months.
In January the noble Sam Croft drillship move from Mako to our second exploration prospect Supercar West.
As we noted in last Night's press release, the Supercar, well as drilling ahead to the San Antonio interval as planned and we are encouraged by what we have seen thus far.
Following saw Bakara, we will drill a third and likely a fourth exploration test in block 58.
Looking longer term Apache is differentiated asset portfolio and disciplined approach gives us confidence in our ability to continue to improve returns and deliver competitive share price performance relative to our peers.
As demonstrated over the last few years, we clearly have a significant inventory of high quality investment opportunities in the Permian Basin, Egypt, and the North Sea.
In Suriname, we have a very large scale asset in block 58, which may be transformational and capable of driving long term volume growth at a very attractive return on capital.
We have made the strategic decision to prioritize funding Suriname over the next few years with a portion of the capital that would otherwise be directed towards shorter cycle growth opportunities elsewhere in the portfolio.
As a result, our near term production growth, both will be a bit slower than it otherwise could be but we believe the long term potential far outweighs any short term impacts.
Over the coming years, our strategic approach will center around retaining free cash flow in excess of the dividend for the purpose of reducing debt.
Continuing to prioritize long term returns overgrowth aggressively managing our cost structure and advancing our exploration and appraisal activities in Suriname.
One of the primary financial objectives is to reduce debt over the next several years, we will do this with cash that is primarily source from operating cash flow.
As a result, our upstream capital investment will be determined by the oil price environment.
For 2020, we're budgeting $1.6 billion to $1.9 billion, which allows for an uncertain price environment centered around a 50 dollar WT oil price.
In terms of capital allocation Alpine high will receive minimal to no funding and we are shifting some capital from Permian oil projects to Egypt, which is better insulated from weak oil prices due to the production sharing contracts.
With this plan in 2020, we expect to maintain our current dividend payment, which is yielding approximately 3.5%.
Retained free cash flow to initiate progress on our debt reduction goals.
Allocate approximately $200 million to exploration and invest $1.6 billion to $1.9 billion of capital, including exploration, which will result in flat to low single digit corporate oil production growth year over year.
To the extent oil prices continue to fall capital will be reduced as will our near term production outlook.
That said if oil prices move materially higher we will prioritize further debt reduction over increasing capital activity.
Moving now to our corporate redesign initiative, we are well down the road with the process of both Rightsizing and reorganizing our technical operational and corporate support functions.
The Rightsizing is a recognition that we will not be returning to past levels of capital activity and need to make a permanent reduction in headcount.
The new model, which is enabled by a more focused portfolio is more centralized and will tie incentives to asset team performance rather than to regions. It is designed to enhance collaboration and enable greater mobility of technical personnel as capital is redirected across the portfolio.
We expect to achieve at least to $150 million of annual savings from overhead and operating cost reductions associated with this initiative.
Over the coming months, we will provide more information around the structure of the new organization.
And with that I will turn the call over to Steve Riney, who will provide additional details on our 2019 results in 2020 outlook.
Thank you John My remarks. This morning will provide a few more details covering Apache is fourth quarter and full year 2019 results.
The progress to date on our organizational redesign and our 2020 financial objectives and guidance.
I will also comment on our recent efforts to reduce long term gas transportation commitments in light of the changing capital plan for Alpine high.
As noted in our news release issued yesterday under generally accepted accounting principles Apache reported a fourth quarter 2019, consolidated net loss of $3 billion or $7.89 per diluted common share.
These results include a number of items that are outside of core earnings. The most significant of these are noncash impairments of $1.4 billion related to alpine high wells facilities leasehold and other upstream assets.
And $1.3 billion for Altus midstream gathering processing and transmission assets.
We also recorded a $528 million impairment of alpine high unproved leasehold assets.
Which is included in exploration expense.
Excluding these and other smaller items adjusted earnings for the quarter were $31 million or eight cents per share.
During the fourth quarter and throughout 2019, Apache maintain a very steady pace of capital activity and spending.
Upstream capital investment was less than $600 million in each quarter of the year, putting us below our full year budget of $2.4 billion.
Total production during the fourth quarter exceeded our guidance, most notably for Permian oil, which benefited from good well performance and the timing of pad completions.
From a financial perspective during 2019, we continued to fund our $376 million dividend payment, which is one of the highest yields in our peer group.
We generated full year cash return on invested capital consistent with the corporate incentive compensation goal of 19%.
We paid off $150 million of debt.
And we refinanced a portion of our long term debt significantly extending our maturity profile, while lowering our average borrowing rate.
As you may recall anticipating alpine high volume growth, we contracted for around one Bcf per day of long term natural gas transportation capacity out of the Permian Basin.
Consistent with our decision to substantially curtail investment in Alpine high we're taking steps now to reduce those commitments.
Today, we have eliminated approximately 310 million cubic feet per day of take or pay obligations and we have more in progress.
As John noted, we're also making good progress with respect to our organizational redesign.
We will substantially complete the redesign for our technical functions by the ended the first quarter.
Our work on the corporate support functions and field operations will likely continue through much of 2020.
We remain on target to achieve our goal of at least $150 million of annual savings and we'll get to this run rate of saving sometime in the second half has 2020.
This effort will of course result in some one off costs.
$28 million of these costs were recognized in 2019 and make up the majority of the $33 million of transaction reorganization and separation costs in the fourth quarter results.
The remainder of these costs will be recognized in 2020.
Turning now to 2021 of our key financial goals for the year is to retain free cash flow after the dividend.
This will be used to begin funding our longer term objective of paying down $937 million of debt maturing over the next four years.
While the softening price environment is making this increasingly difficult debt reduction is a key priority and we're committed to flexing the size of the capital program to ensure progress in 2020.
To conclude my remarks, I'd like to provide some commentary on full year 2020, and first quarter guidance, the specifics of which can be found in our fourth quarter earnings supplement.
For the full year the allocation of our capital budget is intended to balance to competing objectives.
Funding and proper pace of activity to test the significant long term potential of Suriname block 58.
While at the same time investing in near term development to sustain or grow total oil production.
As John noted, we expect to deliver on both of these objectives with our $1.6 billion to $1.9 billion upstream capital program. This year.
Natural gas and NGL production will decline year over year, primarily due to the activity reduction at alpine high.
In the first quarter Alpine high volumes will be slightly below fourth quarter 2019 levels of 95000 Boe per day.
And we expect this to decline to around 50 to 60000 Boe per day by the end of the year.
These numbers do not include the impact of potential production curtailments due to negative waha hub pricing.
Turning to the cost side, because the organizational redesign will impact both the level and timing of cost savings, we're providing only first quarter estimates for DNA elderly and exploration expense.
We will update our guidance on these items as we progress through the year.
On a final note primarily as a result of the fourth quarter impairment charge, we are projecting a material decrease in DNA.
We expect DDNA per BOE Lee for 2020 will be around $13.50.
And with that I will turn the call over to the operator for today.
Thank you.
Ladies and gentlemen, as a reminder to ask the question you would need to press Star then one on your telephone.
To withdraw your question Christopher.
Again, it start wanted to ask your question.
Please standby, while we come topic, you and I Ross.
Our first question comes from the line of Doug Leggate with Bank of America. Your line is open.
Good morning, it's actually John Abbott on for Doug Leggate. He is on a plane right now and he is listening in on the webcast.
Hey, good morning.
Yeah, we just have a couple of questions here staying with Sarah them.
You said that you like what you so far see from those of shallower target.
But you're also planning multiple tests can you elaborate on what you have seen so far for example have you encountered hydrocarbon bearing reservoir sense.
So is.
Thanks for the question.
General, we don't like to comment on specifics about well wallets drilling. So what I will say is is we have drilled through the campaign in.
And as I said, we are encouraged by what we have seen.
We are headed onto the San Antonio.
And the is we've you know as we put in the materials last night in the plan would be to read open hole logs.
Fluid capture fluid samples cores pressure test and so forth.
Alright, and then for our follow up question on the appraisal of mock essential what's the expected timing should we see a result in 2020 can you provide any context on lateral footprint sand thickness as we're trying to get from our view that the block 58 might be the depositions center of the basin.
At this point, what I will say is as we are working very closely with our partners hotel.
Not in a position to give any color because we have to work up that plan. There is a timeline when we need to deliver led to a step solely which we will do we're excited about it we're working on it jointly and we'll be able to talk about that more in the future.
Hey, appreciate it. Thank you for taking your questions you bet.
Thank you.
Our next question comes from the line of Bob Brackett with Bernstein Research. Your line is open.
Yes, I'll try a different tack did the former questions you mentioned fluid sampling on the Saccaro West do you routinely fluid sample.
Formation water.
Yes.
[laughter], Bob we would.
It is not something we would typically do but.
No I mean, it all depends on what we've seen in running the right test according to what Weve, what we've seen in oil.
I appreciate that quick follow up you mentioned 200 million of exploration I imagine that dominantly, Suriname, but could you breakout any other interesting aspects to that exploration budget.
I will say the lions share of that is Suriname.
We do have some things on the unconventional side that we're slowly watching in working but the majority of that.
We'll go to start up.
Great appreciate it.
Thank you.
Thank you.
Our next question comes from the line.
Sure.
Your line is open.
Thank you.
Hi, good morning, everybody.
Normally do this but I have to give Bob kudos. It was in my 20 years, probably the best to ask questions [laughter].
Good question Mike.
Definitely with.
Steve You had said you're reducing your how does commitments on.
From Alpine high.
Just wondering what that looks like it does that take place at the office level and are you able actually sell.
Some of the firm transportation that you've taken on the Gulf Coast Express and permanently.
Yes, Mike.
I'm not going to be able to speak to specific pipelines we've got.
Multiple contractual arrangements for moving gas out of the Permian basin in so it's not all also not.
Specifically related to alpine high in terms of the gas evacuation, it's just gas evacuation from the Permian basin.
Let me just step back from that a little bit.
Yeah, we lean mostly sell our equity production actually in base and then therefore.
On the blast facts that you receive with our earnings announcement, what you see as the realized price in the Permian basin that while holler at El Paso Permian, we have a marketing team that then.
Recommends that implements taking actions around how do we make sure that basin prices are connected to the broader market over the long term.
One example of that action that they might recommend an did was we need to get some pipelines built.
To the Permian basin from the Permian Basin to the Gulf Coast, and we hope that I'd. The two pipelines that you talked about that.
In doing that and that did at will and it did for a while it will help connect the Permian basin to the Gulf Coast.
Marketing our marketing organization then manages.
The exposures.
So stated with those assets and so so we typically.
Manages to manage that by purchasing gas in basin and transporting it to meet our obligations on those pipes.
We have chosen now to reduce our longer term exposure, we've accomplished getting those.
Those built by participating in ETF I'd process.
Those are obligations that do not involve altice midstream that's an obligation of Apache Corporation, and we've decided we want to start reducing some of those exposures and we have initiated that process as I said in my prepared remarks, we've.
We've contracted away basically we've contracted with counterparties to take over our obligation.
As up to 310 million cubic feet today.
That does it start immediately so we still maintain some exposure.
To that in the short term.
And and that's probably a good thing at this point in time.
But we're taking away the longer term exposure on some of the pipeline transport capacity that we have in the Permian basin and at this point, we're still working on on a bit more of that we would like to to bring that down just a bit more.
That's great. Thanks for all the detail and just sticking with alpine high.
John how are you thinking about it now do you keep that has a long term option on gas or do you think it makes sense to consider.
Divestitures there at some point.
I mean, what I'll say, Mike I'll go back and just take a few minutes here, but.
You know when Alpine high was announced in 2016, we had great hope for what it could mean for Apache.
It had all the key ingredients have an impact play large scale low cost eventually and we had acquired the heart of the play.
And the and a number of factors were problematic. It alpine high first as you just to recognize gas NGL prices fell to less than half where the prices we anticipated for long term economics.
Second the lack of infrastructure pro long a period to test for development.
And this along with the sheer stratigraphic size and aerial extent increased the cost and time to do so.
Third the lack of cryogenic processing capacity did not allow us to test the NGL mix and yields until the middle of 2019, when we actually got the cryo is on through all those.
Fourth we anticipated a meaningful uplift and well productivity and a significant decrease in well costs as we move to pad and pattern development as is the case in almost all unconventional resource plays.
We're able to drive costs down below our goals, but the uplift in productivity did not materialize. So today. It we've got about 240000 acres.
There is about 200 of it that will.
Kind of expire over the next three years.
And.
Theres some optionality there, but if you look at the.
The macro environment today, if we got back to enjoy an NGL market, where we were late 18 in there's definitely some things that would be economic but.
How does it compete our portfolio is another question and so Thats why we made the decision we made today.
Very good thank you.
Thank you for the question.
Thank you.
Our next question comes from the non of Gail Nicholson.
Your line is open.
Good morning, Thanks for taking my question.
Thanks Juan.
In my opinion the market still continues.
Discount you Gibson assets can you talk about the inventory running room you guys have identified by the analysis you Jeff.
Hey, good did what gets lost in the shuffle is you've got conventional rock.
It has the.
No the stratigraphic column and there'll extends of greater than the Permian, we have over 6.2 million acres I think with the new acreage that we've added in since 2016 in the new Threed at were shooting.
And then you look at our operational footprint, we have a very large business over there, which gives us a nice backbone to kind of fill it off of what I'm excited about as we used to be maybe six months of inventory today, we see years of inventory and we really high graded some very interesting things that if they work could be.
Game Changers, and so we're very optimistic about where we are with Egypt and some of the things. We got on the drill scheduled are off to a really good start as we said in the prepared remarks and drove some really nice wells Q4, and we've got some very interesting things to test.
But its brits are the PSC really insulate you, which is another nice factor as we mentioned today, we're going to be shifting a little more capital in Egypt, but I think it's through the productivity and the opportunity set that we've identified and quite frankly, we just have a lot more inventory that's got to drill ready that we can prioritize and get after.
Great. Thank you and then on Slide 13, you guys said before.
Operating cash margins.
To clarify this.
Margin include Alpine and if so if we move out and that number would be non outside Permian margin.
Yes. It does include that.
I'm in.
In terms of with all the re Oregon stuff, we're doing our numbers are going to be reported that way. So we didnt really want to break it out but.
Gary can probably get back with you on a follow up or something to give some insight.
Great. Thanks, guys.
Thank you.
Our next question comes from the line of Charles Me with Johnson Rice.
Yeah.
Good morning, John do you and your whole team there.
Good morning Charles.
What did see workforce.
Thanks for bringing or forgive me if that detail on the the garden well I believe that slide 12 of the presentation, there and it looks like the discount rate I Wonder if you could just give us one discrete definitely which is what would your net the off of that offer that growth rate.
Charles as David Purcell, that's 100%.
We have that prospect.
We have 887.
Got it got it and then thanks for that David and then John Theres been some up participants discussion in the.
Ports in the news media about.
I guess and the opportunities in Egypt, and the a particularly in light of you guys re.
Allocating some capital that direction because of the up the the attractive DCC there.
How would you characterize your your appetite for more assets.
Well I mean, what I would say Charles is we don't typically caveat on Andy activity.
Yeah, I think today with the plan we have in the market where it is today.
You wouldn't see us coming out of pocket for something but you know the there's an asset base over there we have a very nice footprint.
And there might be a way to do some creative and accretive site.
Okay. Thanks for that John.
Thank you.
Our next question comes from Atlanta.
Goldman Sachs Your line.
Thank you good morning.
Good morning, Brian moving back to Suriname, you mentioned that fourth exploration test it would be likely can you just talk about the timing for making that decision and then what next steps would be.
From a reagan decision, making perspective for further exploratory testing.
Well, what the rig we've got to today the noble Sam Croft, We've got one well we've already exercise the option on and then there is another well we can drill.
As I said, it's very likely we will do that but we don't have to make that decision. Yet then so it's an option. We just haven't pulled the trigger on but after you know if we if we were to elect that option, which I said he is likely.
Would you know we finished the current well we're on we would drill the third well and then potentially the fourth well and then we will release the rig that I'll, just say that you know India. The appraisal plan Ed Maka, we'll come back with a different rig in a different timeline when we're in a position that we can talk about that.
Great. Thanks, and then back to the back to the North Sea.
When you kind of put together the.
The recent well and garden.
Climbed et cetera, how do you expect your production trajectory for oil to look over the course of the year.
Hi, It's got to me early I mean first quarter is going to be strong with garden, we delayed from Q4 into Q1. So it to the garden too I think it's going to continue to be lumpy.
We've got more wells to drill a garden, we've got some other prospects that are interesting as we tie back so north sea is going to continue to be fairly lumpy based on when we bring these high rate wells on.
Great. Thank you.
You bet.
Thank you.
Our next question comes from the line up.
Well rainy.
Your line is open.
Hey, guys I know, it's a difficult or just sort of know for sure, but I guess I was just looking to kind of get a high level timeline in terms of when you guys might kind of finish drilling and then some of your analysis that you talked about on the Sop occur a well is that kind of a roughly one month type of thing 45 days.
Type of thing can you just give us maybe at a high level in terms of when you might be able to give us a full suite of information on that.
Yeah, we only as I said to you know we don't typically you would like to comment on the auto well wallets drilling.
But we did learned our lesson in December at least to not to give you a little bit about idea in terms of a comment. So that's why we've said we're encouraged.
We're further Campania, we've got the San Antonio into drill.
And then after that it will have some time that.
Devaluation, so I'm not also going to give you a definitive timeline, but we'll get to that as soon as we can after we TD to well.
Got it I understood. Okay, I guess, just with respect to the Permian seemed like you had some very strong wells and Lea County, New Mexico could you guys had reported supplemental information just wanted to get a sense of what the depth of your inventory is in that general area there anymore.
Okay.
Yes.
Yeah listen this is Dave per Se I think generally if you look at our unconventional inventory.
We have more activity in the southern Midland Basin side than the then when you look at new Mexico in the Delaware Basin generally, but we have deep deep inventory across both.
Both basins and as you look out we were just drilling a small fraction of our total footprint and we feel good about the long term.
Inventory depth both in the.
Southern Midland Basin in the Delaware Basin.
Okay. So I guess a lot more.
Inventory in southern Midland versus new Mexico that the way to interpret that.
Yeah, I would now would interpret it that way.
Okay. Thanks.
Thank you.
Our next question comes from them on.
With JP Morgan your line is open.
Hi, good morning, John and Totalgaz.
For Q update they talked about a $2 per barrel kind of cost of acquisition.
Presumably you guys may be approved that type of language. So I was wondering if there's any read through I know that we're very very early in the delineation appraisals, Suriname, but to have in a sizes of a potential discovered resource at this point.
Using that I look at all.
I would just say that is the language they put in and how they characterize it I mean it to.
I'll just leave it at that.
Got it got it fair enough.
And then just maybe my follow up could you maybe elaborate John you talked about an appraisal plan that you'd be working on what goes into that and can we make any any any clues regarding when we could achieve first oil if your delineation.
Efforts prove successful.
For the past first oil in it or what a road what I'll say as reserves.
No the.
The agreements with the concession terms laid out a timeline that you have to follow so you have a discovery decoration to that we have a window, where we have to some submit the discovery notice and then we have a window, where we have to submit the appraisal plan.
And then the development process. So theres a timeline that were on there and we're working through it expeditiously and I think the.
So in our partner will try to accelerate those things a as quickly as we can based on the results that you get from the appraisal program.
Okay. Thanks, a lot John.
Thank you.
Thank you.
Next question comes from.
Its capital one securities.
<unk>.
Thanks, Good morning, everyone, John given the lower Capex budget that kind of fits the current times and the allocation for the Suriname activity of course any assets that you see in the portfolio that may slip into the maybe the better to monetize category.
Yeah, I think today, we look at the portfolio and they really like the balance we've done a lot about over the last couple of years I mean, if you look at the coal and gas richer gas heavy assets, we divested in Canada.
I'm very glad we got our scoop stack in our mid continent sold last year.
So you look at the portfolio today, we're it's tight we're in nice areas. There's always some small little things that we do from time to time.
Even within the Permian, either trades and swaps and acreage here in there that we're willing to monetize if people are interested so we're constantly looking at that.
But I don't think there's anything it to you know that's that's big that we'd say today, we need to move or would you know would move.
Right now in this price environment.
Thats helpful, John and just to follow up.
How many wells were drilled to date in the alpine high and how many of those wells are online currently.
Okay.
Yeah. Richard This is Dave for so I don't have the exit numbers, but it's.
This is coming in the low two hundreds that we've drilled in around two hundreds that are online. Okay. Thank you. That's helpful. Appreciate it sounds to me.
Thank you.
Next question comes from Milan, Neal Dingmann with Suntrust.
Well, John and team congrats on a buck in this disasters energy trend right now my.
First question is on your Permian you will continue a great job, having one of the more stable plans there in the play and I'm just wondering will assume the change in oil prices probably won't impact your pace I'm. Just wondering John will that have an impact on how you think about spacing. Some of these multi zone developments.
No I mean, I think the key for US was we spent really 16 and 17 really very thoughtfully and methodically understanding how to develop and we got to pads early.
And really worked through that work you know at that time and so what you've seen is a very steady plan I mean, we've got about nine months a rig activity as you know kind of lined out and it gives us the ability to work the infrastructure do all the things we need to do ahead of that so I don't see any changes.
In terms are you know to our development approach.
What we have the luxury of doing though is backing off that capital.
Because it short cycle with nature is not something we have to drive forward in this price environment. So.
The only thing you might see as we mentioned the prices down where they are today.
Even below the range, we talked about you know you might see a little further slowdown.
Just because we had the luxury and can do that I think it's also important to keep frac crews working in a couple of rigs working so I'll call, where we maintain our execution fitness.
And we continue to work on a continuous improvement to drive those results, but it's been all about getting to pads. During the testing looking at the long extended flow periods and really a you know unlocking that so we understand how the wells can perform so you can really.
Invest that capital as efficiently as possible.
Great Great details and then my second question just on the North Sea Im just wondering maybe you've already said, but I'm just wondering about we have potentially the same amount of downtime and I think it's three Q and then.
The plan to run continuously run the three rigs.
I mean, I think if you look today, we've had the a platform rig running both it a barrel and forties and we've we've had the ocean Patriot.
We will have the ocean Patriot. This year, we actually did an exploration arrangement, where we're getting carried on a couple wells in the in the North Sea up there in the Beryl area, which helps a little bit all the capital this year, but to you know similar program is what we would envision.
You know for 2020 and you do have your traditional maintenance season.
You know, which we usually get in the third quarter summer months, when the weather gets a little better.
So that'll just be the typical maintenance you think John yes.
And then really whether I mean, it was weather is what kind of drove us to have to wait to bring garden to on so.
You came out of maintenance turnaround and we got into some pretty rough weather you know in the fourth quarter and that was what kind of had us kicks and thanks bye.
Thanks, so much.
Thank you.
Our next question comes from Atlanta Janine.
Yeah.
Hi, good morning, everyone.
Good morning.
My first question is on.
Maintenance Capex maintenance Mad at that 20, Tony Capex budget level year around maintenance mode at the low and I believe and so looking forward to 2021 are you able to maintain flat year over year production at a similar 1.6 billion capex budget or are there. Some one off the here that are kind of driving that number lower so I guess, what I'm getting back.
Getting at is that next year, there could be some incremental cash flow from altos with the pipeline then so that could help funds there it on capex.
Yes, Jinming this is Steve.
So I think the first thing we ought to do is there's a lot of lot of people out there like to talk about maintenance capital and lots of uses of that terminology and I think.
We.
We'd like to think about things like that in a purists way and so we need to be clear what we're talking about for us.
For us maintenance capital needs, we maintain a little volumes and we pay the dividend, but not necessarily any free cash flow.
Creation.
Yes, it's equally important you look at.
How those definitions very over a timeframe you can have a maintenance capital. Some people think of maintenance capital is let's just the next year and the next year that sets. That's one of those cases as well how long can you hold your breath.
And maintenance capital for a year can be pretty darn low.
We'd like to think of maintenance capital at least in a five to 10 year timeframe.
And so that includes ongoing asset integrity spend and that includes spending on inventory progression. So that you can maintain production over that five to 10 year period.
You can also think of maintenance capital.
Over a longer term 20 plus years in that then you need to start introducing exploration spend as well.
And so we don't bother with the one year definition, because we don't want to test selling we can hold my breath.
We just we just wouldn't bother with a one year maintenance program.
Maintenance spend program.
In the five to 10 year timeframe.
We've been pretty consistent for the last five years, saying, we're somewhere around $45 WT.
We can pay the dividend maintain oil production volume.
With no free cash flow retention in is it 44 is at 46, it somewhere around the $45 WT I range has been there for a number of years now if you go to the 20 year plus definition, it's probably in the $48 VTI range that gives us enough money to spend on exploration like we're doing now and Weve specific.
We budgeted for 2020 200 million.
Exploration capital and so that's that's the way we like to think of it another way to another way to think of it for us.
Is that if you're in a 50 to 55 dollar world.
For the long term for the next several years.
We can continue to fund the dividend, we can funds and cash to pay down debt as we're talking about we can sustain oil production volume or grow it slowly over that four year period, and we can fund Suriname to first oil and I think thats, an interesting way to be thinking about maintenance capital as well.
And of course success in Suriname is going to significantly lower that maintenance capital level on wtf prices because of the structure of the capital carry that we haven't had joint venture agreement with total so you get out a few years from now and maintenance capital falls way below that 45 to $48 Libya.
Price environment.
Because of that capital Kerry.
In terms of specifically looking at there's lot of different ways. You can look at what we've talked about for 2020.
If you go to the to the 1.6.
Billion dollars capital range.
The low end of our range, that's contemplating a 46 to $47 WCS price.
It means we still pay the dividend and we fund the $200 million of exploration spend out of that 1.6, and we're probably sustaining production volume at that level pretty.
Pretty flat for 2020.
Year over year.
At the high end, the 1.9 billion capital you probably in the 53% to $55 range Youre.
You are paying the dividend and spending 200 million on exploration.
You are retaining 150 to 200 million of free cash flow for future debt pay down and in that case, you're growing oil production in the low to mid single digits for 2020.
So that's a long winded answer, but I hope that.
Pixel the boxes for you.
I'll now hand definitely appreciate all the detail. That's that's very helpful to know how you're thinking about it and maybe just a short follow up on that following up on the other question Vince and I think that you just mentioned.
Potentially earlier in the call about accelerating the development process in Suriname, if you had the opportunity to do so so what are the key what of the what are the governor answer pacing kind of medium term turn on Capex, you mentioned prioritizing sorry on it sounds like from what you just said you're committed to funding Suriname at our free cash flow we've seen.
Prior precedence, where folks try to Prefund big major capital projects like this with asset sales. So I just wanted to clarify whether you're committed to finding suriname out of free cash flow or a combination of free cash flow plus any sale proceeds.
Yes, Janine so so number one hopefully I didnt say anything earlier that would lead anyone to the conclusion that we're trying to accelerate.
Development and in Suriname, I think it'll take its proper pace and thats, what it will be between us and our partner as we agree to that.
Okay.
Yes, so so in terms of funding the.
The activity in Suriname first of all by by our joint venture agreement with with total it should be clear we were willing to spend 50 50 heads up on exploration because we are very excited about the exploration opportunities in Suriname, and we believe there obviously that they'll continue to be.
Successful.
When you get into when you get into appraisal and development and that's where the capital carry kicks in.
And.
Starting with the appraisal of Maka.
In any development spend that might come from that and appraisal for any further exploration.
Successes.
The.
87, and a half sense of every dollar will be spent by total in 12 and a half sense by Apache and so we intend to fund any of that for the next four years out of operating cash flow.
We don't think will have any problem doing that.
If we have a problem doing that means we're doing a heck of lot of appraisal and development and that would be a great problem to have.
Okay, great. Thank you for taking my question.
Thank you.
Next question comes from the line.
Citigroup Your line is open.
Yes. Good morning, Thanks for taking my questions.
You bet.
So turning to the cost out program.
How should we think about 150 million roughly split in between overhead and ops and do you think you'll be able to achieve the full run rate of savings by by year end.
I think at a run rate base, we'll be able to get there I mean in India. The lion share that is is likely going to come out of the overhead piece, but you know, we're well on our way and working through that.
And we should be able to get to that type of run rate later this year.
Got it and then you took some upfront charges associated with the program and for Q.
How do you think about upfront charges.
Potentially head and in 2020.
As you restructured the business.
Yeah, we'll we'll obviously be taking the the one off costs associated with that will be recognizing those on a quarterly basis. We did recognize some of that I think the number was $28 million in the fourth quarter out of the 33 that were in that one line item on our PNM.
And we haven't put out a an estimate of the total costs, but we will probably do that as we go through the next few quarters.
Okay. That's it for me thank you.
Good.
Thank you.
Our next question comes from.
David Dullum bomb with Cowen Your line is open.
Morning, guys in the nice job nice update thanks for the time.
Just wanted to ask you outlined slate the cost guidance was in the first quarter.
Just in terms of your margins as I guess the year progress is here.
Do you have growth coming from.
Several other areas and alpine high declining.
How do you look at those cash costs I guess on Halloween gbptwenty by the fourth quarter of 20 relative to that.
25, and $75 million in the first quarter.
Yes, David we.
We we intentionally just gave one quarter of guidance on that and I'd prefer not to get into any more than that at this point in time, we'll give more guidance as we go through the year as we get more clarity on what those costs are going to be given the.
The.
The ongoing cost focus program and the pace of change is that program. So let us do that as we go through the next few quarters.
Sure I'll be patient appreciated.
If I could ask I guess.
Secondarily to the other adding on that.
What what are you all assuming I guess for the annualized decline outlive Alpine high.
This total volumes that you have in the U.S. that.
Only down slightly on annualized basis.
So this day for so when you when you think about alpine we're we're not adding any completions this year. So.
You are going to see effectively the unconventional blowdown. So you'll have a steep decline in the first year and then every year after that the decline will.
Will moderate so.
Think about something in the on an annual basis in the mid 30% for the first here and then it will will moderate.
In in the in years, two three and four.
Got it thank you guys.
[laughter].
Thank you.
Question comes from.
Yeah.
Thank you good morning on two question on the 150 million on do restructuring do you.
We saw chain same thing do you have a rough estimate between how much is the on the P. and now side and how much into capital costs.
No. We don't have an estimate of that at this point in time.
Okay on the.
On Permian.
Twentytwenty, you're going to be five to six weeks do you have a split between the Midland and Delaware Basin.
Yes, Paul This is said this day Purcell on a if you think about it in terms of gross completions, it's about 60% Southern Midland Basin, and 40% on the Delaware side.
Okay.
My final one for me well see if we look at.
You all portfolio say over the next five years I mean, so name on your side exciting and Egypt look like you guys have some high hope.
And looked like loss he is probably not necessarily going to we see the NOL.
Capital I attended some from that standpoint.
So should we look at all see say five years from now your steel condensate that coal pulled off your long term portfolio or that.
You may need to be misleading.
And I think today, if you look you what we're doing in the North Sea I'm quite proud I mean, we can look out and have three years of pretty stable production between the two.
Volumes that barrel or lumpy as we're bringing on the subsea tiebacks into our kind of our infrastructure there.
Fortys is all about the low water management program and in flattening that decline in managing our cost side.
So I think today, we look out and quite frankly, we made a lot of progress over the last three to four years on North Sea and the outlook for the next several years looks as good as it's looked from a planning perspective as I've seen in awhile.
Okay, but I mean are you going to put more capital into that or that you sensory has seen some one off dimming tenants mill.
We're definitely spending capital.
In terms of is it an area, we're going to go out and try to consolidate and buy more properties now that and no.
But I think we've got a lot left life left in these assets and there's a lot. We can do on the cost side and Steve you had something you want to add yes, I just recall that famous quote of rumors of my demise have been greatly exaggerated when it comes to the North Sea.
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In 2003, when Apache, but the north sea assets the forties field.
It was scheduled for abandonment in 2012, yes.
Today is scheduled for abandonment into 20, thirtys and that keeps moving out.
So theres a lot to do in the North Sea and I wouldn't worry too much about the next three to five years.
Thank you.
Thank you. Our next question comes from the line.
Oh.
Your line is open.
Thanks.
Lots been addressed I guess I, just want to kind of circle back to the comment.
In the prepared remarks around the.
Just a longer dated growth outlook being moderated.
As you kind of bring.
Suriname on.
Is it right then to just think about basically.
And what we're seeing went to 2020 program is.
It's basically what we should hold flat until we think about Suriname coming on and.
And basically the we have the businesses there are in maintenance mode and.
With that you can then.
Fund the work that's required to to brings turn him to fruition is that the right way to think about it big picture.
Michael it's really going to depend on what the prices do in between because we gave a range on the capital you know it one six you're closer to that mode. At one nine were going to show a little bit of growth and so.
You know and quite frankly, if we need to go lower we will and if we needed to let things move down a here, we're not afraid to do that because we're going to prioritize.
You know paying the dividend funding, Suriname and paying down some debt so.
We're very comfortable with where we are we've got a differential asset base, we've got lower decline rates because of the conventional assets and a lot of our areas.
So we we feel very comfortable with kind of where we are over the next three to five years with that.
Yes, just.
Michael I'd just add this is Steve.
Just going back to the comments I just made a few minutes ago.
For the for the next several years, it 50 to $55, which.
Other than today people have been generally talking about that's kind of the right price environment.
The posting on.
With all recognition appropriate recognition of where prices are today and where they're headed.
50 to $55, we can do all of those things John just talked about we can pay the dividend.
We can fund Suriname to first oil.
We can retain enough free cash flow to pay down debt the $937 million of debt that a mature over the next four years.
And we can sustain or even grow you get to the $55 price and we can grow oil production slightly over that time period.
Okay.
That's helpful and that's the kind of contemplating like a similar four wells per year type exploration program is that reasonable.
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Well, that's just that's that's assuming a $200 million year spent on exploration okay.
And then on a more near term basis, just kind of curious on the.
The cadence I guess in the Permian and on the oil program there.
Massive basically just flat all year or is there a low point than we ought to be considering.
Now I'd like to Q3, Q timeframe, if we kind of bring things backup in the Bakken here just curious, though it's a steady program right. So we've got our a unconventional program grown and we've got some of the you know the CVP and some of those things slightly declining so, but it's pretty steady program. That's the one thing if you go back to mid 17, we've been real steady.
With the program and and as a result, it puts us in a pretty even cadence.
Great now that's helpful. Appreciate it guys.
Thank you.
Next question comes from the line of Josh Silverstein with Wolfe Research. Your line is open.
[noise] stupid questions for you guys an uncertain m. here.
On the Mccullough you mentioned that the I guess the drilling design was in to optimally placed in place the.
Well in the tickets zones. There I was wondering if that was the same thing it's up a car or if you guys are trying to target somewhat differently there.
Oh, just say, Josh it's a function of as you know you've got your seismic ties.
And you're working on this was really are Mako was our first well into.
Block 58, and so you learn things as you go and what we've got as we have multiple stack targets in there and you know, we we lined up to kind of drill what we thought would be optimal along a few of them and we kind of validated that so.
Just the point was had we moved over we would have probably had a different number in terms of net fee to pay and so forth.
And but you learned that and Thats, what the appraisal programs will tell you as you start to work through it.
Any potential discovery that you have.
Got it thanks for that's and then maybe Oh, we haven't talked much about the rest of Suriname, and obviously block 53 is a smaller working interest I think you're at 45% but.
Well, let's just say you guys have additional success in the second third and fourth wells on block 58, and the reason why because we didn't go in test bought 53 next year as part of the exploration program.
No. It will have a decision to make on block 53, we have a 45% working interest in there with our two partners and we do believe there's potential in block 53 and.
Yeah, It's something we'll we'll talk about in the future.
Thanks, guys.
Thank you.
I'm not showing any further questions I will now turn the call John.
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Thank you for joining us on our call. This morning in closing I'd like to leave you with these final thoughts.
If you look at Apache today, we have a diversified portfolio and are able to shift capital is appropriate for the commodity price environment.
We are foregoing short cycle near core near term growth and prioritizing long term returns sustaining the dividend and debt paydown.
Yes, Suriname is per is proving to be a super basin, where we hold an acre block with a world class partner in a created an advantageous capital structure for appraisal and development. We're encouraged by what we have seen so far in our second well and we have a third and likely fourth well to follow in 2020.
We look forward to sharing more information in the future. Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect everyone have a wonderful.
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